KUALA LUMPUR/HONG KONG -- China and Malaysia are placing hopes on a new sport utility vehicle turning around the fortunes of ailing carmaker Proton Holdings, as well as chilled bilateral ties.
The Proton X70, an SUV being built in partnership with China's Zhejiang Geely Holding Group, was launched on Dec.12, with Prime Minister Mahathir Mohamad taking center stage.
Relations between the two countries have been tense since Mahathir took office in May, after he suspended a number of Chinese-backed infrastructure projects agreed by his predecessor.
The vehicle, which has been adapted from Geely's best-selling Boyue, is also the Chinese automaker's first right-hand drive vehicle, and will eventually be sold elsewhere in Southeast Asia -- a market that has become crucial for the automaker amid falling domestic sales.
Many analysts have raised questions over the outlook for the vehicle in a market dominated by Japanese brands.
Initially, the X70 will be produced entirely in China, but the two automakers plan to start manufacturing it in Malaysia next year with an investment of a 1.2 billion ringgit ($287 million).
Geely acquired a 49.9% stake in Proton from conglomerate DRB-Hicom last May. The Malaysian automaker was established by Mahathir during his first stint in power in the 1980s.
"Since partnering Geely, Proton has been recovering and I believe it will be enhanced with the latest X70," Mahathir told an audience that included Geely President An Conghui.
Sales at the formerly state-controlled Proton have fallen due to a perception of poor quality and a lack of new models. Having commanded more than 50% of the Malaysian market around the turn of the century, the company's share now stands at just over 10%.
The automaker has been unable to arrest the decline, despite having had Mahathir as an adviser and owning British sports car brand Lotus until last year.
Geely, which also controls Volvo Cars and has a stake in Mercedes Benz, was brought in to rescue Proton last year by former Prime Minister Najib Razak, who maintained close relations with Beijing. The company is privately controlled by founder Li Shufu.
Li was named one of 100 "vanguards of reform" on Dec. 18, in commemoration of the 40th anniversary of the country's reform and opening up policy, along with Jack Ma Yun of Alibaba Group Holding and Pony Ma Huateng of Tencent Holding.
For Proton's 50.1% owner DRB-Hicom, an assembler for Japanese marques like Honda, Isuzu and Mitsubishi, the X70 signals a potential turning point.
"This is a redemption for Proton," said Syed Faisal Albar, the group's managing director. Geely would provide the "impetus to lift Proton to the next level" by exporting to Southeast Asia, he added.
Both Geely and Proton have made it clear that they aim to expand in the region through the partnership. With annual sales below 600,000 units, Malaysia lacks the economies of scale of Thailand and Indonesia, both also right-hand drive markets.
Expansion, however, hangs on the success of the X70 in Malaysia. The vehicle is fitted with the same advanced safety features as certain Volvo models and has a voice-activated interface powered by artificial intelligence technology.
"Maybe after this, the cars will be conceptualized, designed, tested and built as a truly 100% Malaysian car in the future," said Mahathir, acknowledging that it is essentially a Chinese product.
"This model is extremely important for Proton going forward," said Chips Yap, managing editor of Motor Trade Online. "It must show that Proton has changed."
Proton showrooms across the country have been upgraded, and talks are being held regarding supplier partnerships across the two countries.
"We believe the X70 requires a strong success story in the home market before expanding regionally," said Al Zaquan, an analyst at AmInvestment Bank.
The 1.8 liter SUV has strategically been priced below 124,000 ringgit, cheaper than its Japanese competitors.
Proton said orders had exceeded 10,000 units in the past three months. By comparison, its total sales for the first 10 months of the year totaled 54,326 units, according to data released by an industry body.
Yap said it may take some time for Malaysians to get used to the X70. "If it succeeds, it is a recognition of the Chinese brand behind the X70, dispelling whatever negative perceptions people had about Chinese brands."
Geely played a low-key role at the launch. There was no press briefing and An declined to make a speech, allowing Peter Horbury, the group's chief designer to explain the concepts behind the design.
Countries like Malaysia have become increasingly important for Chinese automakers.
"The China market has been weak for a while. It is difficult to sell a single car," said Lawrence Ang Siu-lun, executive director of Geely Automobile Holdings, the group's Hong Kong-listed unit.
Geely is faring better than many of its rivals. Its sales for November increased 0.3% on the year, compared with a 14% drop for the overall Chinese market. But it is clearly feeling the slump.
"I don't see any sign that market is going to recover," said Ang, citing factors like the trade war between the U.S. and China. The "Huawei [case] could affect consumer confidence," he added.
The company's sales target of 1.58 million units for the year looks increasingly challenging. To achieve it, Geely needs to sell over 172,000 cars in December, or 12% more than a year ago.
Kelvin Lau of Daiwa Capital Markets in Hong Kong confirmed a buy rating for Geely on Dec. 6, citing a positive long-term outlook. However, he sees downside risks in "lower-than-expected sales and ASP [average sales price] growth."
Having focused on its home market while it was strong, about 98% of the company's unit sales are made in China. With the tide now turning, much rests on the partnership with Proton.